FTI Consulting, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless otherwise noted. FTI provides global business advisory, consulting, technology, and strategic communications services through five reportable segments. Financial amounts below are in U.S. dollars; millions unless stated.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change / context |
|---|---|---|---|
| Revenue | $432.3 | $425.6 | Up 1.6%; up 4.2% excluding an estimated $11.0 million adverse foreign-exchange impact. |
| Operating income | $47.8 | $40.1 | Operating margin 11.1%, versus 9.4%. |
| Net income | $23.7 | $18.1 | Up $5.6 million. |
| Diluted EPS | $0.57 | $0.45 | Q1 2014 included a $0.04 per-share contingent-consideration remeasurement gain; adjusted EPS was $0.57 versus $0.41. |
| Adjusted EBITDA | $58.7 | $51.2 | Up 14.6%; margin 13.6%, versus 12.0%. |
| Cash used in operating activities | $51.3 | $110.8 | Outflow narrowed by $59.5 million. |
Revenue growth was led by Corporate Finance/Restructuring, partly offset by lower Technology revenue. Lower unallocated corporate costs also supported operating results. The Q1 2015 effective tax rate was 33.0%, favorably affected by a $1.4 million discrete state-tax item; excluding it, the rate would have been 36.9%.
Segments
- Corporate Finance/Restructuring: Revenue rose 13.0% to $106.2 million; Adjusted Segment EBITDA increased to $22.5 million from $11.0 million. Higher demand and utilization in North America and EMEA drove improvement.
- Forensic and Litigation Consulting: Revenue increased 1.5% to $123.3 million, while Adjusted Segment EBITDA declined to $22.1 million from $26.5 million. Lower utilization and increased personnel investment weighed on margins.
- Economic Consulting: Revenue declined 0.7% to $106.1 million; Adjusted Segment EBITDA fell to $11.6 million from $13.0 million, reflecting weaker margins and lower utilization in certain practices.
- Technology: Revenue fell 9.0% to $54.7 million and Adjusted Segment EBITDA declined to $10.1 million from $17.3 million. Management cited fewer large cross-border investigations, lower consulting revenue, pricing pressure, and investment in personnel and product development.
- Strategic Communications: Revenue declined 2.5% to $42.1 million, including an estimated 7.0% adverse currency impact; Adjusted Segment EBITDA rose to $5.8 million from $2.7 million, supported by lower costs and improved revenue mix.
Cash, liquidity, and debt
- Cash and cash equivalents were $225.3 million at March 31, down from $283.7 million at year-end. Q1 cash use reflects, in part, the usual seasonal timing of annual incentive compensation and other payments.
- Operating cash outflow was $51.3 million; management attributed the improvement versus 2014 primarily to higher collections and less funding of forgivable loans. Days sales outstanding improved to 101 days from 106 days a year earlier.
- Investing cash outflow was $8.8 million, including $8.9 million of capital expenditures. Financing provided $5.3 million, primarily from equity compensation plan activity.
- Total debt was $711.0 million: $400.0 million of 6.75% senior notes due 2020, $300.0 million of 6.0% senior notes due 2022, and $11.0 million payable to former shareholders. Cash less debt implies net debt of approximately $485.7 million.
- No borrowings were outstanding under the $350.0 million senior secured credit facility; $348.6 million was available after $1.4 million of letters of credit. The company reported $700.0 million of long-term debt, excluding the current portion.
- Management said cash, operating cash flows, and potential short-term facility borrowings should be adequate for normal operating needs for at least the next 12 months, while noting acquisitions, changing conditions, or unexpected spending could increase funding needs.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Full-year 2015 capital expenditures were expected to be $36–$41 million, excluding unplanned acquisition or client-engagement needs.
- Management described first-quarter cash needs as seasonally elevated and said operating cash flows generally exceed cash needs after Q1.
- No special charges were recorded in either comparative quarter. Previously recorded special-charge obligations totaled $15.8 million at March 31, 2015; approximately $4.1 million was expected to be paid during the remainder of 2015.
- Foreign-currency translation produced a $20.5 million other comprehensive loss, compared with $4.7 million of income in Q1 2014. The company also cited transaction losses, primarily associated with euro weakness.
- Management identified risks including fluctuating demand and cash flows, utilization and billing rates, retention of professionals, client conflicts, receivable collection, competition, data security and privacy, technology and intellectual-property risks, international operations, and acquisition execution. It reported no material change in previously disclosed risk factors and no known legal matter expected to materially affect financial condition or results.
- The company had not completed its assessment of the expected impact of the new revenue-recognition standard. It stated that adoption of the debt-issuance-cost presentation standard was not expected to materially affect its balance sheets.
Important facts for investors to verify
- Whether Corporate Finance/Restructuring growth and improved utilization can continue, and whether weaker Technology, FLC, and Economic Consulting performance stabilizes.
- Whether collection trends and working-capital movements support improved cash generation beyond the seasonally cash-consuming first quarter.
- How currency movements affect revenue, earnings, and accumulated other comprehensive loss.
- Whether the company’s investment in Technology and FLC personnel and product development yields improved margins and returns.
- Debt-service capacity, available credit-facility headroom, and remaining restructuring and acquisition-related obligations.
- Potential sensitivity of goodwill and intangible-asset values to future performance, given the company’s substantial goodwill balance.